Monthly Archives: August 2017

During the presidential campaign, Donald Trump railed against Wall Street elites and vowed to close the carried interest loophole which allows private equity and hedge fund billionaires to pay lower effective tax rates than middle-income American families.

Appearing in Louisville, KY this week at a forum with Senate Majority Leader Mitch McConnell and a group of business leaders, Treasury Secretary Steven Mnuchin vaporized that promise. Yes, he said, the Administration wants to close the carried interest loophole for hedge fund managers, but not for “other types of funds that create jobs” like private equity and real estate fund managers. The problem with that: private equity – which might more accurately be described as destroying jobs than creating them – is in fact the primary beneficiary of the loophole.

The Administration’s double talk on closing the carried interest loophole is transparent hypocrisy. Americans are fed up with cynical, pretend measures; they want real action to get tough on Wall Street. Instead of squeezing ordinary families in the name of tax cuts for the wealthiest, real tax reform should include measures to make Wall Street pay its fair share.

The hypocrisy of Trump’s economic populism became apparent early on, as he filled top positions with former Goldman Sachs executives. Then came a series of attacks – in clear alignment with Wall Street’s interests – on regulations put in place after the financial crisis. And now, as Congress returns from recess, they are ready to continue with Wall Street giveaways.

Secretary Mnuchin’s comments came in the context of broader Administration tax proposals which promise to open up a whole new avenue of tax avoidance for wealthy Wall Street financiers. In April, the Trump Administration released a 1-page tax plan outlining the broad strokes of a proposal that would, among other things, lower the tax rate on “pass-through” businesses to 15%. This idea was portrayed by the White House and Republican leaders as a tax cut for small businesses, but more than three-quarters of the benefits would go to the top 1% according to the Tax Policy Center, while only 6.6% of all business owners would gain anything. Rather than help small businesses be competitive, Trump’s tax cut would be a gift to America’s wealthiest, including private equity and hedge fund managers, and real estate developers like Trump himself — who already enjoy a tax system rigged in their favor.

Leading the process on taxes is a group that has nicknamed itself the “Big Six.” They include Treasury Secretary Mnuchin, National Economic Council Director Gary Cohn, Senate Majority Leader Mitch McConnell, House Speaker Paul Ryan, Senate Finance Chair Orrin Hatch, and Ways & Means Committee Chair Kevin Brady. Backed by a multi-million dollar tax overhaul campaign launched by the Koch Brothers, the Big Six have been out on the road promoting their deceptive vision as a way to help American workers.

House Speaker Paul Ryan, who received $5,727,069 in contributions from the financial sector between 2015 and 2016, and helped win his chamber’s approval for a radical bill to roll back financial and consumer protections, was recently called out by a Catholic nun during a live CNN town hall for not siding with the poor and working class, “as evidenced by the recent debates around health care and the anticipated tax reform.” During the televised town hall, Ryan had to correct himself after promoting “tax cuts” instead of “tax reform.”

In spite of Republicans’ best efforts to polish their words and sell their plans as good for ordinary Americans, people see through the phony rhetoric; and what they see is a massive giveaway to Wall Street, big corporations and the wealthy. Real tax reform must include steps to make the financial services industry pay its fair share – that is the message of the Take On Wall Street campaign, a group of over 50 community groups, unions, consumer advocates and others, including Americans for Financial Reform, Communications Workers of America, Public Citizen, Institute for Policy Studies, the AFL-CIO and Americans for Tax Fairness. The coalition is calling on Congress to adopt a set of tax reform measures that would raise more than $1 trillion in additional revenue and discourage dangerous Wall Street speculation. It’s not too late for Republicans to remind themselves who it is they work for, and act in Main Street’s interests.

During a recent appearance on “Meet the Press,” unofficial Trump advisor Corey Lewandowski called forthe removal of Richard Cordray as director of the Consumer Financial Protection Bureau.

His statement seemed to come out of nowhere, prompting NBC’s Chuck Todd to seek an explanation: Did Lewandowski happen to have “a client that wants” Cordray fired?

“No, no,” he insisted, “I have no clients whatsoever.”

That emphatic denial stood unchallenged for two days – until the New York Times revealed Lewandowski’s ties to Community Choice Financial, an Ohio-based company that was a major client of his former consulting firm before offering his new firm a $20,000-a-month retainer for “strategic advice and counsel.”

Community Choice is one of the country’s biggest players in the world of triple-digit-interest payday and cash loans. Majority-owned by Diamond Castle Holdings, a private equity firm with $9 billion in assets, the company has more than 500 storefronts and does business (factoring in its online as well as physical operations) in 29 states.

The company’s CEO has described the Consumer Bureau as “the great Darth Vader” of the federal government, and the source of that ill-feeling is plain to see.

The Consumer Bureau is getting ready to issue a set of consumer-lending rules that, if they resemble a proposal put forward last year, will require verification of a borrower’s ability to repay. That simple concept runs directly counter to the business model of the payday industry, which is to keep its customers in debt indefinitely, making payments that put little or no dent in the principal. Many people end up spending more in loan charges than they borrowed in the first place.

Like other payday lenders, Community Choice Financial has been a magnet for complaints and investigations. A California class-action lawsuit filed last year accuses the company, along with its subsidiary Buckeye CheckSmart, of violating a federal telephone-harassment law. That is also the theme of dozens of stories submitted to the Consumer Bureau’s complaint database. “This company,” says one borrower, “called my elderly parents issuing threats against me to ‘subpoena’ me to court…”

Another complainant describes a series of phone calls and “threats of criminal prosecution… on a loan I know nothing about, did not apply for or receive, and have never received any bills for.” Community Choice and its subsidiaries – companies with names like Easy Money, Cash & Go, and Quick Cash – figure in more than 650 Consumer Bureau complaints, over unexpected fees, uncredited payments, bank overdraft charges triggered by oddly-timed electronic debits, and collection efforts that continue even after a debt has been fully repaid, among other recurring issues.

Community Choice has also been a pioneer in in the subspecialty of evading state interest-rate caps. In Ohio and Texas, among other states that have tried to ban payday loans, Community Choice’s payday shops have camouflaged their predatory loans by using bank-issued prepaid cards with credit lines and overdraft charges; calling themselves mortgage lenders instead of consumer lenders; and registering as credit repair companies in order to charge separately for their supposed assistance in resolving people’s financial troubles.

The success of these legal workarounds tells us that it will be very hard for the states to address the scourge of payday lending without help. That’s why payday lenders are pushing Congress to strip the Consumer Bureau of its authority over them. And, that’s why Community Choice brands CheckSmart and Cash Express have been generous contributors to sympathetic members of Congress, and why – with the help of Lewandowski and other mouthpieces – the industry is trying to get the Trump administration to remove the Bureau’s director (even if there is no legal basis for doing so) and replace him with someone who can be depended on to leave payday lenders alone.

Lewandowski may be too embarrassed for the moment to continue raising his voice on the industry’s behalf. We can hope that’s true, at any rate. With or without his assistance, however, the industry’s campaign will continue, and the Lewandowski episode has made the stakes very clear: Will the Consumer Bureau be allowed to go on doing the job it was created to do, standing up to the financial industry’s power and insisting on basic standards of transparency and fair play? Or will some of the financial world’s fastest and loosest operators find a way to undermine this agency and keep it from cracking down on their abuses at great long last?

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This blog is maintained by AFR as a forum for ongoing news and commentary about the fight for effective financial reform. Blog posts represent the opinions of their authors / posters, and do not necessarily represent the views of the AFR coalition or coalition members.